How Defaulted Student Loans Affect Credit in 2025

• Defaulted student loans can drop your credit score by 63 to 175 points, depending on how strong your credit was before. That damage shows up fast once the default is reported.

• Not all defaults show up on your credit report. Some disappear after 7 years, others get wiped through Fresh Start or loan rehabilitation, but they can still hurt you behind the scenes if left unresolved.

• The only reliable way to remove a federal student loan default is through rehabilitation. If you’re not eligible or it’s a private loan, you may still rebuild your credit by paying on time, using secured cards, and keeping your balances low.

Federal student loan collections resumed recently after nearly five years on hold, and millions of student loan borrowers are now facing serious damage to their credit scores. According to new data from TransUnion, recent defaults have already caused borrowers’ credit scores to drop by an average of 63 points, and as much as 175 points for borrowers with previously excellent credit.

But there’s more to this story than just restarting collections by the federal government.

Many defaulted student loan borrowers who were in default before the pandemic missed out on the Fresh Start program, meaning they’re immediately subject to resumed collection efforts and ongoing credit damage. At the same time, a separate group of borrowers who remained in good standing during the payment pause are now falling behind on their monthly payments since repayments restarted, creating a fresh wave of delinquent loans.

Roughly 5.3 million borrowers are currently in default, and another 4 million are significantly delinquent.

Ahead, we’ll show you exactly how defaulted student loans damage your credit, when and for how long defaults appear on your credit report, how to remove defaults using rehabilitation or disputes, and the most effective strategies for rebuilding credit afterward.

Yes. Defaulting on federal student loans typically drops your credit score by around 63 points on average. For borrowers with high credit scores 780 or above), the damage can be even greater, up to 175 points.

A student loan default occurs when you miss payments for over 270 days, severely impacting your payment history, which makes up 35% of your FICO score.

This significant drop in your score limits your available credit, reduces borrowing power, and can result in the denial of new credit applications.

Not always. Some defaulted student loans do show up on your credit report, but others don’t. If your default isn’t showing, or it’s marked as “closed,” “removed,” or “transferred,” here’s why:

• It aged off: Defaults fall off your credit report 7 years after the date of default.

• The loan was transferred: If your loan changed servicers, the old account may say “closed,” and the new one might not list a default.

• You used Fresh Start: If you used the Fresh Start program before it ended in April 2024, your default was deleted from your credit report, even though you still owe the loan.

If you’re not sure where your loans are now, here’s how to find your defaulted student loans so you can check their current status and take the next step.

Yes. Borrowers who fix the default through rehabilitation often see the biggest score increase because the default is removed from their credit report. If you consolidate instead, the default stays but is marked paid, which still reduces its negative impact.

Most of the borrowers we helped get out of student loan default fast saw a 50 to 100+ point increase after resolving the default, depending on the rest of their credit history.

A student loan default stays on your credit report for 7 years from the date of default, not the date you fix it or pay it off.

If you use rehabilitation, the default is removed from your credit report early. That’s usually within 30 to 90 days of completing the program.

If you have an FFEL loan and you don’t rehabilitate, the default will stay on your credit report for the full 7 years, even if you consolidate or pay it in full.

Yes, but only if the default is resolved the right way or reported incorrectly.

The only guaranteed way to remove a federal student loan default is through rehabilitation. Once you complete the program, the loan holder is required to request that the default status be deleted from your credit report.

You can also have a default removed by filing a dispute. But only if the reporting is wrong. That could include incorrect dates, balances, or listing a loan you never had.

Here’s the reality: there’s really only one reliable way to remove a student loan default from your credit report—using the federal loan rehabilitation program. Everything else is pretty much a gamble.

Step 1: Make Sure Your Loan is Federal

First things first, check StudentAid.gov to see if your loans are federal (Direct, FFEL, or Perkins). Rehabilitation only works for these types of federal loans. Private loans from companies like Sallie Mae or SoFi? They don’t offer rehab, and just paying them off won’t erase the default.

Step 2: Start the Rehabilitation Program

Next, call your loan holder and ask to begin loan rehabilitation. You’ll commit to making nine consecutive, on-time payments, usually based on your income through an income-driven repayment plan. If you miss a single payment, you’ll have to start the entire process again.

After you make that ninth payment:

• Your loan exits default.

• The default status itself will be removed from your credit report (typically within 30–90 days).

• But here’s the catch: the late payment marks stay.

Definitely get the agreement in writing so there are no surprises. You can track your credit updates using AnnualCreditReport.com or a credit monitoring app.

Note: Rehabilitation is a one-shot deal per loan.

Step 3: What if the Default Doesn’t Disappear?

Sometimes mistakes happen, and the default stays on your credit report even after rehabilitation. If this occurs:

• Contact the Default Resolution Group and request written proof of completion.

• Submit disputes to Equifax, Experian, and TransUnion, including your rehab confirmation.

Following up is crucial here.

Other Options

• Wait it Out: Defaults naturally drop off your credit report after seven years. The negative impact of late payments usually fades significantly after one or two years, especially if you actively manage your credit well.

• Disputing with FCRA: You can use the Fair Credit Reporting Act (FCRA) to dispute inaccuracies. This can sometimes remove the entire account. But if the loan still carries a balance, servicers typically respond and update it accurately. Your best bet here? Consolidate the loan first to pay it off, then dispute the old, defaulted loan afterward. Sometimes the servicer doesn’t respond because there’s less incentive once the loan is settled.

• Private Loan Defaults: Forget pay-for-delete with defaulted private loans. Lenders typically won’t remove defaults for settling the loan, although collection agencies occasionally might. Even then, this only addresses the collector’s mark, not the original default itself.

Rebuilding credit after defaulted debt involves demonstrating reliable credit habits consistently. Here’s how defaulted borrowers can regain their credit standing effectively:

1. Pay your student loans on time. Now that your loans are out of default and back with a loan servicer, each monthly payment is reported positively to the three credit bureaus. Set up autopay through your servicer or use payment reminders. Even a single missed payment can trigger substantial declines in your credit score. (Note: Late payments for federal student loans won’t ding your credit until you’re 90 days past due).

2. Get a secured credit card or credit builder loan. These products are specifically designed for people recovering from lower credit scores due to student debt defaults. Use them responsibly. Make small, manageable purchases, pay off the balance regularly, and gradually build a healthy credit history.

3. Keep your credit utilization low (below 30%). If you get a credit card, avoid maxing out your credit limit, even if you plan to repay it fully each month. Maintaining low balances signals responsible credit management to lenders and gradually improves your access to better financial products and lower interest rates.

Credit recovery doesn’t happen overnight.

While most borrowers see meaningful progress within a few months to a year, fully rebuilding your credit can take longer, particularly if you have other derogatory marks or negative events (such as wage garnishment or reduced credit limits) in your financial history.

The reality is that a student loan default will crush your credit. It can drop your score by more than 100 points, limit your access to new credit, lead to higher interest rates, and expose you to wage garnishments, tax refund seizures, and hefty collection fees.

My team of student loan experts and I have helped hundreds of borrowers over the years get out of default quickly, repair their credit, and find affordable monthly payments—all while protecting their progress toward loan forgiveness.

Book your call today.

We’ll review your credit, explain your options clearly, and guide you through the steps to fix the damage for good.

Related Readings:

• How Student Loans Affect Credit Score

• Can Student Loans be Removed from Credit Report

• When Do Student Loans Go Away